Even after the strongest rally since the early days of the dot-com boom, the S&P 500 Index still has room to push higher through the end of the year, according to JPMorgan Chase & Co.’s trading desk.
Derivatives analysts at the bank say the most popular options trades are wagering the US equity benchmark will hit 6,200 to 6,300 this month, implying a further advance between roughly 3% and 4% before the year is over, based on Friday’s close around 6,032.
“We remain tactically bullish into year-end given the positive macro environment, earnings growth, and a Federal Reserve that remains supportive of markets,” Head of Global Market Intelligence Andrew Tyler wrote Monday in a note to clients. “We think it’s sensible to play the market’s momentum and see low pullback potential until mid-January.”
Tyler’s team recommends a heavier tilt toward value and cyclical companies like banks, automakers, transportation companies — excluding airlines — and the small-cap Russell 2000 Index. On the technology and telecommunications side, they say stay invested in the so-called Magnificent Seven technology stocks, data centers and semiconductors.
Wall Street strategists are generally optimistic about the outlook through the rest of the year — a time that tends to be strong for equities generally.
The trading desk at Goldman Sachs Group Inc. has estimated the S&P 500 will near 6,300 before the start of 2025, in line with the level flagged by JPMorgan’s trading desk. The last two weeks of December and first two weeks of January are by far the best four-week stretch of the year, averaging a 2.6% return since 1928, according to Scott Rubner, Goldman Sachs’ managing director for global markets and tactical specialist.
But this time is hardly conventional, with the S&P 500 already staging the best first 11 months to a year since 1997. That’s left it on track to post back-to-back annual gains of more than 20% for only the fourth time in the past century, per an analysis from Deutsche Bank AG. The outsize advance has taken the index to lofty valuations at more than 22 times projected 12-month earnings, compared with an average reading of 18 in the last decade.
The rally, however, will likely face some pressure in the middle of next month before fourth-quarter earnings get underway and President-elect Donald Trump is inaugurated, which will shift the focus toward policies — like tariff increases — that are casting uncertainty over the economic outlook. That’s already pushed up bond yields on expectation that his policies, including a push to deport workers in the US illegally, will fan inflation pressures.
But that hasn’t dampened the bullish sentiment on Wall Street. Forecasts from major banks for 2025 show broad expectations that the stock market will extend its rise: Predictions from Goldman Sachs, Morgan Stanley, and Bank of America Corp. fall around the 6,600 line, with estimates going as high as 7,000 from Deutsche Bank and Yardeni Research.
Those reaching for a historical analogy to the current zeitgeist should look to the mid-1990s, according to JPMorgan’s Tyler. That was another time the Fed pulled off a so-called soft landing by tightening monetary policy without tipping the US into a recession. It was also marked by elevated interest rates and excitement about technological breakthroughs.
–With assistance from Natalia Kniazhevich, Jan-Patrick Barnert and Jessica Menton.
